Reports that Advanced Micro Devices is in woeful financial shape are fueling fears — and in some cases hopes — that the California-based semiconductor company will abandon its plan to build a computer chip manufacturing plant near Albany.

With much fanfare, state officials and AMD two years ago announced that the company had tentatively agreed to construct an 800,000-square-foot manufacturing facility in Saratoga County in exchange for the most lucrative incentive package ever offered by New York: $1.2 billion in grants and tax rebates.

The company, which must decide whether to go ahead with construction by the middle of next year, is reported to be in increasingly dire financial straits. AMD’s stock price has fallen sharply in the past year, as the company contends with a cash shortfall that is growing at an alarming rate. This week, the company announced that it would cut its workforce by 10%. “Our view is that AMD’s model remains structurally broken and we continue to recommend that investors sell/short the stock. We are increasingly concerned about AMD’s cash burn (we estimate a $550mn cash burn in Q1’08 alone) and expect the company to try to come to market later this year given its $5bn in debt and less than $1bn in cash pro forma for 1H’08 losses,” an April 7 analyst report from Goldman Sachs stated.

The bleak news has increased anxiety among developers and politicians that AMD cannot afford to expand and will pull the plug on the factory.

Lawmakers in this year’s budget just appropriated close to $50 million to pay for sewer, power, and water lines and roads to get the construction site ready for groundbreaking. They already have spent tens of millions of dollars on the project.

“Am I nervous that it is not a done deal? I would love it to be. It would make my life easier,” the director of the development company that owns the land around the site, Michael Relyea, said.

A spokesman for AMD did not return a call for comment.

The AMD deal was largely arranged by state Senate Republicans, whose leader Joseph Bruno, represents the largely undeveloped area around the planned construction site.

Mr. Bruno has hailed the agreement with AMD as his flagship achievement in economic development, saying it would establish upstate as a national hub for the semiconductor industry.

Senate Republicans say they remain confident that AMD is not backing away and say company executives have reassured them that the company has not changed its plans.

“We still believe they are going to fulfill the commitment,” a spokesman for Mr. Bruno, John McArdle, said.

A number of economic and business groups in the state lamented the generous size of AMD’s incentive package, which translated into a cost for the state of more than $100,000 a job, and wondered how New York would ever recover the investment.

In luring businesses to New York or encouraging them to expand, state development agencies seldom offer companies incentive packages that require the state to spend more than $50,000 for every new job created.

“It’s a very high-risk deal and probably would not have taken place if it were beyond the eyesight of the majority leader of the state Senate,” the president and CEO of a Western New York chamber of commerce, Buffalo Niagara Partnership, Andrew Rudnick, said.

Last month, Senator Schumer toured the site — situated at the Luther Forest Technology Campus in Malta, about 20 minutes north of Albany — with Mr. Bruno and U.S. Rep. Kirsten Gillibrand and pronounced himself hopeful that the plant would be built, saying the company’s troubles were only temporary.

“AMD has had a rough year — five quarters — where they’ve lost money,” Mr. Schumer said, the Times Union reported. “AMD and most of their analysts regard this as a bump in the road.”